PW 9ReportProperty WeeklyAugust 3, 2016

Franchise model sees growth Realty businesses in the UAE talk about the benefits of the franchise business model

Franchise business has been well established in the developed mar-ket for many years –

not only in the real estate but also in other sectors, such as retail and hospitality. How-ever, this model has started seeing growing demand in the UAE in recent times when some of the home-grown companies, such as Asteco and Driven Proper-ties, saw business opportuni-ties in this.

Dubai being a highly fragmented market presents tough competition – which means small-size brokerage firms or new entrepreneurs looking to establish them-selves have to work in a slim margin, ostensibly though, their cost of operation or ini-tial investment remains high. Whereas, if they opt for a franchise partnership, it can provide them an immediate access to high-end services, business solutions and train-ing of an established bro-kerage firm. Although this comes with a franchise fee or a fixed percentage of revenue that they will have to shell out to the franchisor, the business model allows them mitigate risk by keeping their initial investment and cost of operation low – something that is very important in to-day’s market scenario.

Asteco, which was among the firsts to offer franchise solution in this region, launched its Licens-ing Services division back in late September 2014. Omar Binder, Director – Licensing Services, Asteco, says, “For a company to develop a high-producing business, it re-quires more often than not, a significant investment of cash and marketing to raise brand awareness and build brand equity.” He says it’s a fact that many new busi-ness don’t survive. “With a franchise, essentially you are gaining access and leverag-ing the franchisor’s value to each of these business ele-ments ensures your success rates are much higher,” adds Binder.

He says the market has been very much receptive to this business model. Last year, Asteco signed its first two franchisees with Dubai-based Livington Properties and Asset Value Real Estate Brokerage.

The company is current-ly working with 10 licensed franchisees located in the three key Middle East gate-way cities. “This year we will

By S.A. KaderSpecial to PW

be exploring new opportuni-ties further afield, with pros-pects in the GCC, Europe and North Africa,” Binder adds.

Another company to start a franchise business last year is Dubai-based Driven Properties, which the com-pany claims, is the first of its kind in the UAE. “This is a traditional, tested model in the US and Europe, with the likes of REMAX and Century 21 taking the franchise route.

This model is new to the region and we are looking to pioneer this space and ben-efit from the first mover’s advantage,” says Abdullah Al Ajaji, Managing Director, Driven Properties. He says the franchise model virtu-ally eliminates the risk that an entrepreneur is taking by starting a new operation.

“Operating a franchise allows the entrepreneur to spend much less setting up a platform than if they were to do it all from scratch. In doing so, the franchisor acts as the advisor and mentor for the franchisee and guides them through every step of the way until success is reached,” says Al Ajaji. The company has entered into a joint venture with an inter-national player to operate the Driven franchise out of Saudi Arabia.

Benefits of the franchise model

Technically, a franchise is granted to an individual or a firm to run a business in an assigned territory using another firm’s proven brand and systems. In reality, Bind-er says, it is also a partner-ship between the franchisor and the franchisee, which, although, underpinned with a legal agreement, is depend-ent for its success on the de-livery of the products and services by the franchisor and the commitment of the franchisee. “At the end of the day the franchisee runs their business their way and Aste-co is on hand to support,” he adds.

According to Al Ajaji, the benefits of the fran-chise model are seven-fold.

Picture: Supplied

✚ The franchise model could add value to both new entrepreneurs and established ones

It gives immediate expo-sure and market presence through brand recognition, and access to diverse data-base of investors and end-users. “They can also get to use a state-of-the-art CRM system designed specifically for Driven Properties that would cater to the business rules of the company and its franchisees. Besides, they receive marketing support through our award-winning marketing team,” he says.

Also, Al Ajaji adds, Driv-en Properties’ presence in different locations in differ-ent cities allows franchisees to use any of the company’s facilities and offices. “Other important services such as HR and talent acquisition also come through a cen-tralised system that caters

to all franchisees. This also involves ERP solution link-ing all functionalities of the business such as payroll, fi-nance, HR, and marketing,” he adds.

Franchise fees

Although, there are many benefits, some high-produc-ing franchisee companies may feel they will end up paying too much to the fran-chisor since the fees are of-ten based on company sales.

Al Ajaji says this is why they have adopted the mod-el of fixed fees as opposed to a percentage of company sales. Typically, a franchisor is entitled to a percentage of a company’s top-line. “But we have adopted a model that is different and more adoptable to the lo-cal market, whereby a fran-chisee pays a fixed monthly fee, therefore allowing the franchisee to expand be-yond reach and incentivis-ing them to continue being a part of the Driven family,” he explains.

“Instead of limiting the growth of a franchisee by claiming a percentage of revenues, which can be sig-nificant, we empower fran-chisees to exploit their full potential. We, of course, need to ensure that the fran-chisee has the operating and financial means to do so,” Al Ajaji adds.

Established or new?

Industry experts say franchise model could add value to both new entrepre-neurs and established ones who are looking to revitalise their business. “If we take the UAE residential property market as example, we know it’s a very competitive, fast changing environment so an Asteco franchise may suit an existing real estate brokerage operator looking to revitalise and relaunch his business or an ambitious employee wish-ing to set up on their own,” explains Binder.

Al Ajaji agrees that in a fragmented market like the Middle East, competition is extremely fierce. “Having an established firm with a strong brand, this risk is mit-igated. With the right tools and innovative solutions, franchisees have the oppor-tunity to benefit from our knowledge, resources, and systems to grow their op-eration.” The Dubai property market has the problem of plenty with too many agents chasing the same number of properties. Many feel the franchise model can help im-prove this situation. n

Abdullah Al AjajiManaging Director, Driven Properties

Omar BinderDirector, Licensing Services, Asteco